International Business By Prof Srikanth Venkataswamy Global Perspective.

International Business

By

Prof Srikanth Venkataswamy

Global Perspective

2

Marketing In the new Millennium-Challenges and Issues

1. Seamless Global society

2. Basis For competitive advantage

3. Business at the speed of thought

4. Virtual Enterprises

5. Customer: Co-producer of products and services.

6. Customer: A warehouse of information

7. The Death of business and consumer marketing

3

Marketing In the new Millennium-Challenges and Issues, Contd…

8. The role Of Distribution Channels

9. The Poor as Market Segment

10.Environment Protection

11.Diversity and Convergence Coexist

4


1. Seamless Global societyThe physical Distance, information and Knowledge, has now become redundant.Emergence Of global Society and universal values.Universal value relates to concept of time.Which is an indicator of opportunity.By this More and more customers are willing to accept global products and services.Further, emergences of these values has altered concept of space,time and Location.

5


2. Basis For competitive advantage

Technological changes has lead to significant shifts in Competitive leadership.

The present Day environment, Knowledge management has become crucial armour for competitive survival.

6

A = Your point of differentiation. Some questions to consider:How sustainable is this? Is this really as large as we’d like it to be? How can we make it larger and more sustainable? B = Points of parity. Some questions to consider:What do we want to do with these? C = Competitors’ points of differentiation. Some questions to consider:Is this area growing? How difficult would it be for us to move these to B or A? D = Opportunity. Some questions to consider:How do we go after this so we move it into A and not B? How do we prevent our competitors from moving it to B or C? Why is this space so large and A so small? The only way to do this analysis in a useful way is to get the information from your target market. Don’t

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3.Business at the speed of thought The marketing Challenges Lies In enabling Customers To overcome their resistance to change.

The Product Life Cycles will Be far shorter.

Interactive technologies will eliminate several roles in marketing of products and services.

Products will be further standardized and hence the opportunities to differentiate will no longer exists.

8


4. Virtual EnterprisesIn this era of Digital Darwinism and virtual reality, size and location of an enterprise will have a very little or no role to play. A Virtual Enterprise (VE) is a temporary alliance of enterprises that come together to share skills or core competencies and resources in order to better respond to business opportunities, and whose cooperation is supported by computer networks. It is a manifestation of collaborative networks

The enterprise is more of an action, rather than an institution.

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5.Customer: Co-producer of products and services.The Producer will take the product up to certain level in the value chain and then leave it for the buyer to customize it to his or her requirements.

Ex- Asian Paints Shade Bay. McDonald: Customers not only collects the order

but also cleans up after the food is consumed.

Color Worlds are altering the manner in which products are distributed and sold.

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6.Customer: A warehouse of information

In this internet and speed age, the customers has access to huge bank of information from various national and global sources.

Hence the era of standardization is today replaced by mass customization.

12


7.The Death of business and consumer marketing

The differentiation between business and consumer marketing, urban & rural marketing and domestic & global marketing will get more blurred.

The physical difference between the product & services will cease to exist.

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8.The role Of Distribution Channels

The conventional dealer and distributors will no longer Viable.

Service and customized will be the order of the day.

Global SCM will emerge and converge.

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9.The Poor as Market Segment

Globalization has widened the gap between the rich and the poor.

Poor people world wide are now a large segment which get not be ignored.

This segment offers more attractive opportunity than the rich segment.

15

Globalization Of The Economy

Depends on:• The role of human migration, • International trade, • Movement of capital, and• Integration of financial markets

http://en.wikipedia.org/wiki/Migration

http://en.wikipedia.org/wiki/Trade

http://en.wikipedia.org/wiki/Capital

http://en.wikipedia.org/wiki/Market

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Globalization:Globalization refers to increasing global connectivity,

integration and interdependence in the economic, social, technological, cultural, political, and ecological spheres.

Globalization is an umbrella term and is perhaps best understood as a unitary process inclusive of many sub-processes such as-

• Enhanced economic • Interdependence, • Increased cultural influence, • Rapid advances of information technology, and• Novel governance and • Geopolitical challenges that are increasingly binding

people and • The biosphere more tightly into one global system.

http://en.wikipedia.org/wiki/Economics

http://en.wikipedia.org/wiki/Social

http://en.wikipedia.org/wiki/Technological

http://en.wikipedia.org/wiki/Cultural

http://en.wikipedia.org/wiki/Political

http://en.wikipedia.org/wiki/Ecological

http://en.wikipedia.org/wiki/Information_technology

http://en.wikipedia.org/wiki/Biosphere

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Globalization:• Globalisation of the world economy has

been especially pronounced after World War II and the Great Depression of the 1930’s in the USA.

• The rise in the volume of trade between the developed and the developing countries,

• Increase in cross-border transactions, rise in immigration and

• Transfer of technology are some of the key issues of globalisation

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Per

cen

tag

e o

f A

do

pte

rs

Time of AdoptionEarly Late

Inn

ova

tors

Early Adopters

Early Majority

2.5%

13.5%

34% 34%

16%

Laggards

Late Majority

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10.Environment ProtectionThe biggest Challenge for the new millennium marketer is protection Of environment.

Be it in product development ,use or disposal,

The marketer will have to make a conscious efforts to protect and maintain the environment.

This has led To development of eco-friendly Products ex: Hotels, watches, food products, cars , fuels, packaging materials etc

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Levi’s Eco Jeans Promotes Sustainability

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Bio Fuels

•Biodiesel •Bioethanol

http://www.foss.dk/Solutions/BusinessAreas/Biofuel/Biodiesel.aspx

http://www.foss.dk/Solutions/BusinessAreas/Biofuel/BioEthanol.aspx

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11.Diversity and Convergence CoexistMarkets are diverse. The diversity is not just Based on Demographic & geographical location of the customers, but also on their response in changes epically to technological changes for which converges of needs is also a fact.

It is not only product related but will based on the organization's culture, systems and hence quality.

Ex- long term vision ,Financial soundness, top-end technological development, Investment ,Innovation and new product & market development.

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Marketing Management Concepts or Philosophies

There are Five Marketing Management concepts:

1. Production Orientation Concept

2. Product Orientation Concept

3. Sales Orientation Concept

4. Market Orientation Concept

5. Societal Orientation Concept

Global Business An Insight

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Benefits

1. Survival

2. Growth in Sales

3. Profits

4. Diversification

5. Price moderation

6. Consumer Benefits

7. National Benefits

Challenges

Globalization

Globalization refers to increasing global connectivity, integration and

interdependence in the economic, social, technological, cultural, political,

and ecological spheres.

Definition Of Globallsation. :• During the Last few decades, human dynamics,

institutional change, political relations and the global environment have become successively more intertwined.

• While increased global economic integration, global forms of governance, globally inter-linked social and environmental developments are often referred to as globalization,

• there is no unanimously-agreed upon definition of globallsation.

• It means different things to different people.

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Globalization:Globalization is an umbrella term and is perhaps

best understood as a unitary process inclusive of many sub-processes such as-

• Enhanced economic Interdependence, • Reduction In cost & Distance• Increased cultural influence, • Rapid advances of information technology, • Novel governance • Geopolitical challenges that are increasingly

binding people • Emergence of Global institutions• The biosphere more tightly into one global

system.

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Globalization Of The Economy

Depends on:

•The role of human migration,

• International trade,

•Movement of capital, and

• Integration of financial markets

THE 3 I’s (eyes) Of International Business:

1. Interdependence

2. Integration

3. Immigration

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Need Based Economy

–Global Competition

–Liberalized Economy

–Compete or Perish

–Change Agents Needed

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Research &

Development

Product

Design

Process

Development

Goods

Services

After-Sale

Raw

Materials

Labor

Technology

Infrastructure

Country A

Country C

Country B

Country D

The Global Supply Chain: Intra-Firm Coordination.

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Distributor Storage withCarrier Delivery Dell inventory

Factories

Customers

Product FlowInformation Flow

Warehouse Storage by Distributor/Retailer

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Dealing with Product Variety: Mass Customization

MassCustomization

MassCustomization

High

HighLow

Low

Long

Short

Lea

d T

ime

Cost

Customizatio

n

Benefits Of International Business

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Benefits1. Survival

2. Growth in Markets

3. Sales & Profits

4. Diversification

5. Inflation & Price moderation

6. Standard of living

7. Immigration & Employment

8. Consumer Benefits

9. National Benefits

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Benefits of Competitiveness

Decreased budget deficit

Increased competitiveness in world

market

Improved domestic performance

High productivity of resources

START HERE

What the customer wants in products and

services

Capital

Technology Human resources

Reduction trade deficit

Increased standard of

living

Stronger national security

More and better jobs

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Driving Forces Of International

Business 1. Growth 2. Profits3. Market Needs4. Technology5. Cost6. Quality7. Communications and Transportation8. Leverage

A. Systems

B. Experience

C. Scale

D. Resources Utilizations

E. Global Strategy

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OPERATIONS IN A MULTI-COUNTRY CONTEXT Different Environments

Economic/Financial

Political/Legal

Social/Cultural Differences in Customer Behavior/Market Segments Differences in Competition Different Marketing Infrastructures

Media

Distribution

Logistics

NEED TO: Adjust to These Differences

OPERATIONS IN A MULTI-COUNTRY CONTEXT Different Environments

Economic/Financial

Political/Legal

Social/Cultural Differences in Customer Behavior/Market Segments Differences in Competition Different Marketing Infrastructures

Media

Distribution

Logistics

NEED TO: Adjust to These Differences

WHAT MAKES INTERNATIONAL Business CHALLENGING?WHAT MAKES INTERNATIONAL Business CHALLENGING?

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Political/legalforces

Economicforces

Competitivestructure

CompetitiveForces

Level of Technology

Price Product

Promotion Channels of distribution

Geography and

Infrastructure

Foreign environment(uncontrollable)

Structure ofdistribution

Economic climate

Cultural forces

Political/legal

forces

Domestic environment(uncontrollable)

Marketing(controllable)

Environmentaluncontrollablescountry market A

Environmentaluncontrollablescountry market B

Environmentaluncontrollablescountry market C

ll

The International Business Task

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Economicforces


CompetitiveForces

Level of Technology

Price Product


Geography and

Infrastructure



Economic climate

Cultural forces

Political/legal

forces






ll


The international Business must deal with two levels of uncontrollable uncertainty

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Economicforces


CompetitiveForces

Level of Technology

Price Product


Geography and

Infrastructure



Economic climate

Cultural forces

Political/legal

forces






ll


The international marketer must deal with two levels of uncontrollable uncertainty

Each foreign country in which a company operates adds its own unique set of

uncontrollables

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Economicforces

CompetitiveForces

Level of Technology

Price Product

PromotionChannels of distribution

Geography and

Infrastructure



Economic climate

Cultural forces

Political/legal

forces





Price

Promotion Channels of Distribution


Product

Marketing controllable


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Economicforces


CompetitiveForces

Level of Technology

Price Product


Geography and

Infrastructure



Economic climate

Cultural forces

Political/legal

forcesMarketing

(controllable)




Competitive structure

Economic climate

Political/legal forces

Domestic uncontrollables

The International Marketing Task

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CompetitiveForces

Level of Technology

Price Product


Geography and

Infrastructure



Economic climate

Cultural forces

Political/legal

forces






Structure of distribution

Level of Technology

Competitive forces

Economic forces

Political/legal forces

Cultural forces

Geography and

Infrastructure

Foreign uncontrollable


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Domestic VS International Business

Domestic Business Global Business1. One nation, same language

and culture.

2. Transport cost is one of the major expenses.

3. One currency

4. Market is relatively homogeneous.

5. Political environments and factors are the same.

6. No problem of exchange control and tariffs

1. Many nations, Many languages and cultures

2. Transport cost influences to some extent.

3. Different currencies in different countries.

4. Markets are diverse and highly heterogeneous.

5. Different political environments and factors in different countries and are vital.

6. There are problem of exchange controls and tariffs.

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Domestic VS International (contd….)

Domestic Business Global Business7. Data Collection relatively

easy, accurate and at less cost.

8. Relative freedom from Govt. Interferences.

9. Individual company has little effect on environment.

10. Relatively stable business Environment.

11. Chauvinism helps.

12. Uniform Financial climate

7. Data Collection a formidable task, requiring significantly higher budgets and personnel allocation.

8. Govt. influences business decisions.

9. “Gravitational” distortion by Large companies.

10. Multiple environments, many of which are highly unstable.

11. Chauvinism hinders.

12. Variety of financial climates , procedures. to wildly inflationary.

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Domestic VS International Business (contd….)

Domestic Business Global Business13. No major Legal & taxation

issues

14. No major constrains in advertisements & promotions (messages, language, costs, medium etc..)

15. Marketing costs: is minimal, Traveling, communication, Presentations

16. Business “rules of the game” mature and understood

13. Legal & taxation issues not relatively Smooth.

14. Advertisements & promotions have to be carefully handled. (messages,language,costs,medium etc..)

15. Marketing costs: is a Variable,

16. Rules diverse,varied,changeableand unclear sometimes.

The process (stages) of Internationalization

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Stages

1.Domestic

2.Export

3.International

4.Multinational

5.Global/Transnational

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Stages

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ALTERNATIVE STRATEGIESALTERNATIVE STRATEGIES

International

HighG

loba

l Co-

ordi

natio

n In

tegr

atio

n

Low

Low HighNational differentiation, Responsiveness

Multi-National

GlobalTrans-National

Multinational corporation:

• A corporation that has its facilities and other assets in at least one country other than its home country.

• Such companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management.

• Very large multinationals have budgets that exceed those of many small countries.

Sometimes referred to as a "transnational corporation".

Multinational corporation:

1. Having operations, subsidiaries, or investments in more than two countries: a multinational corporation.

2. Of or involving more than two countries: a multinational research project.

n. A company or corporation operating in more than two countries.

The formal division of the organization intosubunits such as product divisions, national operations, and functions (Horizontal differentiation)II. The location of decision making responsibilitieswithin that structure (centralized ordecentralized) – Vertical DifferentiationIII. The establishment of integrating mechanismsto coordinate the activities of subunits includingcross-functional teams and or pan-regionalcommittees – integrating mechanisms

Types of Multinational corporations:

There are four types of multinational corporations:

1. Decentralized in management nature+ strong home country presence example: metro cash & carry

2. Centralized + economies of scale ; example: nestle

3. A company which open up in deferential regions with same technology as in parent company. i.e,

4. Transnational alliances: combination of the above three types; example: KFC, Pizza Hut, MacDonald

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Stages

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Management Orientation and Global Marketing

• Different Management Orientations in the Global Arena – EPRG Framework

Regiocentric

Ethnocentric

Geocentric

Polycentric

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Managerial Orientation

Ethnocentricity – Orientation to home country

Polycentricity – Orientation to host country Regiocentricity – Orientation to a region Geocentricity – Orientation to the whole

world.

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Theories of International Trade

The Theory of Absolute Advantage -- Adam Smith

• Different countries produce some goods more efficiently. This may due to differences in factors such as climate, quality of land, natural resources, labour, technology, capital or entrepreneurship.

• If each country specializes in the product for which it has absolute advantage, each can use its recourses more effectively.

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Possible Product Outputs(for certain resources & lab our)

Country A Country B

Product X 20 10

Product Y 10 20

The Theory of Comparative Advantage -- David Ricardo

• A country specializes in those products that it can produce most efficiently than other products without regard to absolute advantage.

• A country would focus on the product with greatest comparative advantage or a product with the least comparative disadvantage

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Possible Product Outputs(for certain resources & labour)

Country A

Country B

Situation 1

Product X 20 10

Product Y 10 20

Situation 2

Product X 20 10

Product Y 30 20

Ugra Raj Enterprises Privated Limited68 68

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Heckscher-Ohlin Theory of Factor Endowment

• Argues that comparative advantage arises from differences in Factor Endowment.

• Extent to which a country is endowed with such resources as Land, labour and capital.

• Different nations have different factor endowments and different factor endowments explain differences in factor costs.

• The more abundant a factor, the lower is the cost.

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Defects in the theory• Unrealistic Assumption of labour Cost.• Static nature of the theory• Neglect of transport costs.• Assumption of constant costs.• Factors Immobile Internally• Unrealistic theory based on assumptions.• Inadequate explanation of comparative

cost.• Demand conditions ignored.• Complete specialization is impossible.

Porter’s Diamond of “National Competitive Advantage”

• Although nations are nominally committed to free trade they tend to intervene in international trade to protect the interests of politically important groups or promote the interests of key domestic producers.

• For example, In the United States agricultural subsidies have helped to protect relatively inefficient cotton farmer from being exposed to the full forces of competition in the global marketplace.

• The subsidies were put in place due to the political influence that cotton farmers exert on the United States Congress this unfortunate, for these subsidies have stimulated overproduction of cotton in the United States, which has driven down the price of cotton on world markets.

Trade barriers:

• Restriction that renders importation of some goods into a country

• Trade barriers are government-induced restrictions on international trade trade barrier

• Government imposed restriction on the free international exchange of goods or services.

Types of Barriers:

Trade barriers are generally classified as

• Tariffs

• Non-tariff barriers to trade

Trade Policy Uses Seven Main Instruments

1. Tariffs,

2. Subsidies,

3. Import quotas,

4. Voluntary export restraints,

5. Local content requirements,

6. Administrative policies, and

7. Antidumping law.

TARIFFS –It is a tax levies on goods entering into the

market /imports (or exports).

Tariffs fall into two categories.

1. Specific tariffs : assessed per unit of import Or example, $3 per barrel of oil.

2. Ad valorem tariffs : Based on value of import /are levied as a proportion of the value of the imported good.

3. Compound Tariffs /Combination of Two:

Tariff produces revenues for the government and protect domestic producers.

For example:,• In march 2002 the U.S. government placed an

ad valorem tariff of 8% to 30% on imports of foreign steel.

• The effect however was to raise the price of steel products in the United States by between 30 and 50 percent.

• A number of U.S. steel consumers, ranging fro appliance makers to automobile companies, objected that the steel tariffs would raise their costs of production and make it more difficult for them to compete in the global marketplace.

In general, two conclusions can be derived from economic analysis of the effect o import tariffs:

1. Tariffs are unambiguously pro-producer and anti-consumer while they protect producers from foreign competitors this restriction of supply also raises domestic prices.

For example: a study by Japanese economist calculated that tariffs on import of food stuffs, cosmetics, and chemicals into Japan cost the average Japanese consumer about $890 in the form of higher prices.

2) Import tariffs reduce the overall efficiency of the world economy.

They reduce efficiency because a protective tariff encourages domestic firms to produce products at home than, in theory, could be produced more efficiently abroad. The consequence is an inefficient utilization of resources.

• For example: tariffs on importation of rice into South Korea have led to an increase in rice production in that country; however rice farming is a non-productive per se of land in South Korea. It would make more sense for the South Koreans to purchase their rice from lower cost foreign producers and to utilize the land now employed in rice production.

Tariff on Exports :

• Sometimes tariffs are levied on exports of a product from a country.

• First, to raise revenue for the government and

• second, to reduce exports from a sector often for political reasons.

• For example: In 2004, China imposed a tariff on textile exports. The primary objective ,it moderates the growth in exports of textiles from China.

NON-TARIFFS:

Types of Barriers:

Trade barriers are generally classified as

• Tariffs

• Non-tariff barriers to trade

Trade Policy Uses Seven Main Instruments

1. Tariffs,

2. Subsidies,

3. Import quotas,

4. Voluntary export restraints,

5. Local content requirements,

6. Administrative policies, and

7. Antidumping law.

The Theory of Absolute Advantage -- Adam Smith

• Different countries produce some goods more efficiently. This may due to differences in factors such as climate, quality of land, natural resources, labour, technology, capital or entrepreneurship.

• If each country specializes in the product for which it has absolute advantage, each can use its recourses more effectively.

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Defects in the theory• Unrealistic Assumption of labour Cost.• Static nature of the theory• Neglect of transport costs.• Assumption of constant costs.• Factors Immobile Internally• Unrealistic theory based on assumptions.• Inadequate explanation of comparative

cost.• Demand conditions ignored.• Complete specialization is impossible.

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Domestic VS International Business

Domestic Business Global Business1. One nation, same language

and culture.

2. Transport cost is one of the major expenses.

3. One currency

4. Market is relatively homogeneous.

5. Political environments and factors are the same.

6. No problem of exchange control and tariffs

1. Many nations, Many languages and cultures

2. Transport cost influences to some extent.

3. Different currencies in different countries.

4. Markets are diverse and highly heterogeneous.

5. Different political environments and factors in different countries and are vital.

6. There are problem of exchange controls and tariffs.

92

Domestic VS International (contd….)

Domestic Business Global Business7. Data Collection relatively

easy, accurate and at less cost.

8. Relative freedom from Govt. Interferences.

9. Individual company has little effect on environment.

10. Relatively stable business Environment.

11. Chauvinism helps.

12. Uniform Financial climate

7. Data Collection a formidable task, requiring significantly higher budgets and personnel allocation.

8. Govt. influences business decisions.

9. “Gravitational” distortion by Large companies.

10. Multiple environments, many of which are highly unstable.

11. Chauvinism hinders.

12. Variety of financial climates , procedures. to wildly inflationary.

93

Domestic VS International Business (contd….)

Domestic Business Global Business13. No major Legal & taxation

issues

14. No major constrains in advertisements & promotions (messages, language, costs, medium etc..)

15. Marketing costs: is minimal, Traveling, communication, Presentations

16. Business “rules of the game” mature and understood

13. Legal & taxation issues not relatively Smooth.

14. Advertisements & promotions have to be carefully handled. (messages,language,costs,medium etc..)

15. Marketing costs: is a Variable,

16. Rules diverse,varied,changeableand unclear sometimes.

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Stages

1.Domestic

2.Export

3.International

4.Multinational

5.Global/Transnational

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Stages

International Business By Prof Srikanth Venkataswamy Global Perspective.

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Transcript of International Business By Prof Srikanth Venkataswamy Global Perspective.